FEES

The number one reason why we invest with Vanguard is because of their low fees. They don’t charge commissions for trading, which separates them from the rest of the pack.

The only thing you pay for when buying and trading Vanguard funds is their expense ratio.

For the index fund that I buy, VTI, I only pay .04%. Some funds have an expense ratio of .1% for comparison. I’m sure it comes to no surprise that the less fees you pay, the more money you get to keep. Having the low fees from Vanguard seems like a no-brainer when it comes down to making more money.

You are in control

With Vanguard funds, I am in charge of where my money goes. I have always believed that I am the sole person who will take care of my money the best. I don’t want to trust anyone else with my money because they won’t treat it as carefully as I will.  Sure, there is more responsibility on my shoulders to make the most of my investments, but that’s something I’m comfortable with. Many people use financial planners to invest for them, but Vanguard easily takes out the middleman and allows you to do it on your own, which saves you lots of money.

Free education

Vanguard provides plenty of resources to learn about what you are investing in. They breakdown most everything to make it simple and easy to understand. I don’t have a degree in finance, nor do I spend copious amounts of time studying things related to finance, but Vanguard makes it easy to understand.

Returns

The Index fund that I have most of my investment in, VTI, has performed well for me. This index fund covers the entire stock market in the US, which allows me to not worry about things like timing the market or researching companies in depth. If you are like me, we don’t have the time to do that.

These are the main reasons why we invest with Vanguard. If you would like help setting up a Vanguard account, or if you have any general questions about investing, feel free to ask below in the comments, or send us an email at thefundfamly@gmail.com and we will walk you through it all.

Today’s interview is with Ben.   

Personal

Name: Ben D.

Age: 27

Your home location: Provo

Career/Source of regular income: Business owner and college teacher

What do you do for fun? Play with my kids, play sports, geek out over personal finance  

Success Tips

What has led to your success?

I think the biggest thing has been learning as much as I can. I read books, blogs, articles, etc. and try to soak up as much as possible. That’s actually how I started with the concept of FI, by stumbling on a blog. But it’s not just reading, it’s actually applying what I read.

Advice to people trying to achieve success?

Don’t look at it as a sprint, view it as a marathon. It takes time and patience to get to where you want to be. Set goals with measurable actions and track your progress. I have spreadsheets with three years of tracking our money. It’s fun to look back and see how far we’ve gotten the past three years, and it motivates us to keep going.

Read. A lot. The more I read, the more I learn and become successful. Even if you don’t want to read, listen to audiobooks or podcasts. There’s so much information out there.

Don’t do it alone. Get a support system and help each other reach your goals.

How do you measure success?

For me, success is when I accomplish a goal. It may be a small goal like to read one article daily, or a huge goal like buying an investment property. I like to focus on the small daily “wins” and allow those to accumulate to one big accomplishment. It’s the little things that add up.

What are your success habits?

In terms of personal finance, I’ve found my best habit to be to check and keep track of our personal finance on a regular basis. It helps us succeed when we know where our money is going.

Financial Independence/Retirement Plans

What does financial independence (FI) mean to you?

The common definition is when your passive income exceeds your monthly income. To me, that is the ultimate goal because it means I am free to explore life the way I want to. I’m the type of person that gets bored easily with just one thing and it would drive me insane to have the same job day in and day out for 40 years. To be financial independent means I am able to shift gears when I want to try something new without any implications on providing for my family.

Do you have plans for financial independence/retirement?

It’s my goal to be financially independent by 40 years old.

Why do you want to achieve retirement/financial independence?

I’ve never been a fan of having someone or something control my life and my everyday schedule. I love the concept of being free to enjoy life doing things I’m passionate about with the people I want to be with. I’ve never had a full-time “9-to-5” job and it’s my plan to keep it that way and instead use that time to .

If you had to start over, what’s the most important thing you would focus on?

I would have started saving and investing earlier at a younger age. My wife grew up in a thrifty family and already had solid personal finance principles when we married and had a strong savings account and no debt. My single days were full of spending every penny I earned and I didn’t have any savings and had some debt. It wasn’t until about a year into our marriage that we really started going beyond just saving money in the bank. We paid off all my debt and opened retirement accounts and started investing in properties. I really think if we had known what we know now back when were single, we would be much more ahead and could be financially independent much earlier than 40.

I would specifically focus on tracking my spending/knowing where my money was going and opening a retirement account earlier.

What tips do you have for others who want to grow their income?

Learn as much as you can and just do it. If it’s side hustling, investing, getting a raise, sales, whatever, become the best you can be and don’t be afraid to fail. I hate failing, but I love learning from my failures and figuring out how to improve.

Do you have any sources of income besides your career? If so, can you list them?

We own three rental properties and I own a business. We also do independent contractor work for various companies whenever we can.

Do you have a budget? If so, how do you implement it?

I used to have a budget with my wife when we first married. After about 3 years of observing our spending habits, we have been able to fall in a groove and no longer stick to a budget. We still meticulously track every penny we spend.

What is your investment philosophy/plan?

Right now, we’re focusing on retirement accounts and property investing. We max out our ROTH IRAs every year. My wife has a 401(k) at her work that we put 10% of her income in every month. We’ve bought three properties in the last three years and are focusing on a “snowball” with our rental income and we hope to be able to build a solid portfolio of cash flowing properties.

Do you give to charity? Why or why not? If you do, what percent of time/money do you give?

We donate at least 11% of our income. We strongly believe in giving back to the community. We’ve been fortunate to be in the situation we are and to be in a position to give back.

Buying a car is a big purchase. There should be a lot that goes into what you want in a car, including price. Tara and I have bought 4 cars in the 4 years we’ve been married and would like to share our experiences of when we bought our cars with cash vs. when we bought our cars on credit.

Cars we bought on credit

While we were dating, I bought my first car on credit, a Mazda 6. This was the worst experience I’ve had buying a car, mainly due to the crappy salesman I had to deal with. I didn’t have any experience buying a car and so the salesman took advantage of that, promising me a certain payment, only to call me back the day after I had the car needing more money down and a different payment amount. The loan I had taken out was around $7,000 so my payment was relatively small ($120), but I didn’t realize how much that small payment would hinder my wealth building in the long-term.

About a year later, we got in a wreck and realized that we barely had any equity in the car. The insurance paid off the loan, but we were left with only $1,000 to buy another car. We felt we didn’t have other options so we decided to get another car on credit. This car was cheaper ($4,000) and the payment was only $100 a month. This car seemed to be a really great deal at the time, but it ended up having quite a few problems. The A/C died on us and the brake pads quickly went out. We also had some suspension issues that would have cost us around $1,000 (had we fixed it).

Car we bought in cash

Shortly after we bought this car, we realized that we would need another car (Tara and I both worked at the time). We knew we didn’t want to buy a car with credit this time and decided to find a car to buy with cash. We found an old Honda that was listed for $1,500.The seller was a private seller close to where we lived. He wasn’t trying to up-sell us on anything and was willing to work with us having only $1,200 cash. We bought this car pain free and drove it for another year before selling it and moving to Texas.

Not everyone’s experience with buying a car on credit is necessarily bad. I think our experiences are especially bad looking back on how it has hurt our financial growth. We were really good at paying extra on our cars and getting out of debt, but if we could have put that extra money towards investing, we would have had around $15k+*.

In our society it is “normal” to have a car payment. We have decided that we don’t want to be “normal” anymore. Our next car purchase will be with cash. And the next. And the next. And the next. You get the point. It takes time and dedication to save and pay cash for a car. We currently drive a paid for SUV that we love. I think because we own it and don’t have payments on it, we appreciate it even more. It’s no longer a burden, but a blessing.

The difference

The biggest difference for us buying cash compared to on credit, wasn’t the actual buying experience. It was after we had bought the cars. Our first car left us with few options after we had gotten in a crash. The second car had issues that we had to fix on top of making payments. Most of all, we slowed down our path to wealth.

Not having payments has helped us to grow our net worth substantially. We are able to take trips like the one we are going to in May. But most importantly, we don’t have the stress that car payments bring.

What experiences do you guys have with buying a car? Did it feel different buying cash over on credit? Does it help bring you peace of mind?

*This is based off of us making double the payments at $240/month over 4 years with 11% returns. Dave’s Calculator

Here are 5 reasons to have an emergency fund:

1. You or your spouse (or both) lose a job. This seems to be the most popular reason to have an emergency fund. Sometimes losing a job is out of your control . Other times you are in a bad job and need to get out. Whatever the reason, having an emergency fund will make this less of a crisis. A little over a year ago I lost my job and was without work for 3 months. Luckily our emergency fund covered our expenses and once I got another job, we were able to build it back up again.

2. You may get sick or be unable to work. Sickness or disability can be an unfortunate reality for some people. A friend of mine who worked in construction broke his arm and was unable to work until his arm healed, leaving him without pay. If he would have had an emergency fund, things would have been much easier to deal with.
3. Your car breaks down. Cars can be the best or they can be the worst. No matter what car you drive, your car is always at risk of breaking down at some point. Depending on what work needs to be done, it can cost you a lot of money. Just this past year, fellow Fund Family member, Jacob, had two car repairs that cost him over $2,000 total in the span of a few short months. This came around the same time he had a baby and had to pay for graduate tuition for the new semester. Things can pile up quick, and he was very grateful for his emergency fund when that all happened.
4. Your AC or heating goes out. This applies more to homeowners. As I’m writing this, the temperature outside is 14 degrees, not having heat in this weather would be miserable.
5. You want piece of mind. This may be the most important reason. Having extra money set aside is always a good feeling. It isn’t fun when you have to use that money, but it’s better than having to borrow it from someone else.   

There are plenty of other emergencies that can come up. Hopefully these 5 give you a good idea of how unpredictable life can be and why you should be prepared.

How much to put in your emergency fund

The exact dollar amount will vary from person to person. We calculated our emergency fund based on our budgeted monthly expenses.  I usually make a very simple spreadsheet that outlines all of our expenses for a month.

Our total expenses in January came out to be $1,579 dollars. A safe number to calculate would be to take the total expenses and multiply it by 3.  

However, this number can be a little deceiving. If a true emergency were to happen (lose my job, get sick, etc.), then certain expenses would be cut. For example, we wouldn’t have a budgeted amount of $50 for eating out. This number would go straight to $0.

The way we calculated our 3 month emergency fund number was by adding up all the expenses of things we couldn’t live without (rent, groceries, gas, etc.). This number ended up being a bit more reasonable.

This number will continue to grow as our expenses go up throughout the years. We plan on adding around $1,000 every year or so, depending on our situation. When emergencies do happen, we use the money, but quickly put money back into the fund to be ready for the next emergency.

Where to put your emergency fund

Because emergencies are unpredictable, you want your money somewhere where you can access it quickly. Tara and I put ours in a Chase savings account which is linked to our regular checking account. This makes the funds almost immediately available to us if we were to need it. This should not be treated as an investment account, so do not be worried about getting a low rate of return on it.

Make sure that you aren’t getting charged fees in the account where you decide to store your emergency fund. Hopefully your money stays in the account for a long time, so having fees wouldn’t be ideal.

There are plenty of reasons to have an emergency fund. Our reasons may be different from yours. Hopefully you don’t ever have to use your emergency fund, but chances are, you will. It’s best to be prepared for when those times come. It will make life a little less stressful. It did for us.

Have you had a time when your emergency fund came in handy? Please comment below with any questions or email us at thefundfamily@gmail.com. We would love for you to share your experiences with us!

Investing doesn’t have to be complicated and you don’t need any fancy degree or work experience to do it.  Anyone can be successful at it too! But to be successful, you need to understand some core principles behind investing. Below are 6 simple principles that will help anyone succeed when investing! Take a look and let us know if you have any additional principles you follow!

1. Start early 

The earlier you start investing, the more compounding interest will take effect and benefit you big time. Compounding interest, put simply, is interest earning more interest. As your interest earns interest, linear growth becomes exponential and suddenly the dollar you originally invested is worth much, much more.

For example, the graph below shows two different investors. One invested $10,000 (“Investor A”), the other $35,000 (“Investor B”), assuming a 10% annual growth rate. Can you guess which line is which?

If you guessed the blue line is Investor A, then you are absolutely right! How is this possible? By starting early, and letting compounding interest do its thing. In this example, Investor A put aside $1,000/year from age 21-30 and never put aside another dime. Investor B started investing at 31, also putting aside $1,000/year, and invested until he/she was 65. Investor A’s $10,000 investment was able to gain more momentum and capture the positive effects of compounding interest more than Investor B, who ended up investing more over a lifetime. This goes to show, we need to start early! (And really, we should be a mixture of the two investors by not only starting early, but continuing to invest the money throughout our lives, and not just for a few years.)

Ideally, we all should’ve started investing as kids, but if you are anything like me, you had no idea investing was a thing, let alone knew how to do it. But it’s not too late to start now, regardless of how old or young you are. Investor B may not be as well off as Investor A, but Investor B’s $35,000 still turned into almost $300,000! So wherever you are at in life, just start ASAP!

2. Diversify

Let me tell you a tale of two stocks from personal experience.

Stock 1:

I had known that I wanted to invest for a while now, but lack of know-how kept me from doing so. Finally, I had a friend kind of show me the ropes a little bit and I went for it. One of the first things I invested in was a stock of a company that I only knew because I knew and respected one of the VPs. I didn’t really know what the company actually did. At the time, the stock was trading for about $35/share and I bought around 11 shares. In the first month or two, things were great! My investment went up by $20 or so and it felt great. Then the volatility and reality of stocks showed its ugly face and over the next few months, the investment went from trading in the mid-$30s to a whomping low of about $12. I had seen my investment lose roughly 65% of its value in probably less than year. Yikes! It took another year or two just to break even, and at that time I cashed out as fast as I could.

Stock 2:

Fast forward a year or two from the investment in the first stock. I had learned a bit more about investing and had made better choices since then. One day, I happened to look into Apple’s stock and noticed that it had dropped to about $99 a share, when it had once traded for much more than that. I decided to jump on that and purchased a grand total of 1 share! But hey, I was a poor college student, so I couldn’t do much more. I held that stock for almost two years, and during that time I watched that stock go from $99 to about $176 when I finally sold it. That was awesome! Easiest money I’ve ever made.

So why do I tell these stories? Well, quite simply because I wouldn’t recommend investing in stocks at all. Sure, one experience was positive, but the other one was quite painful. Principle #2 is all about diversifying. What are we diversifying exactly? We aren’t just trying to diversify what we own, we are trying to diversify risk. Owning stock in a single company is by definition, the opposite of diversifying your risk. You are literally putting all your eggs in one basket, hoping that the basket doesn’t fail you. So if you decide you want to invest in stocks, keep this in mind.

In order to diversify risk, you want to own a variety of shares in companies that are in a variety of industries. This means, not investing all of your money in technology alone, but investing in utilities, consumer products, etc. The easiest way to diversify your risk is through mutual funds or ETFs that track indexes such as the S&P 500.  A little research can go a long way when it comes to diversifying risk. We will have future articles outlining how to do this research and try to make it as simple as possible!

Now, keep in mind there will always be some form of risk involved. But without risk, there is no reward. The key is being wise about the risks you take.

3. Seek low-fee investments

The last thing you want for your investments is to see a lot of value lost through high management fees or other expenses. This is why you want to find ETFs (exchange-traded funds) and Mutual Funds that have low management fees and expenses. Anytime you look up a ticker symbol of an ETF or Mutual Fund, it will tell you the fee rate. It doesn’t take a genius to know you want this number as low as possible.

ETFs that track an index (such as “SPY”) generally have very low expense rates that can be less than 0.1%. This is due to the fact that they are not actively managed by fund managers who are trying to outperform the market (and who usually fail to do so). A good rule of thumb is to try to find funds that have net expense ratios of 0.6% or less, but the lower you can get this, the less money you’ll lose on fees with your investment.

4. Avoid investment vehicles you don’t understand

If you read our Steps to Wealth Building article, you know we are fans of K.I.S.S. (keep it simple stupid), and the same applies here. Complicated investments are rarely worth it. Most of the time people are just taking advantage of others’ ignorance and making a fortune off of fees and commissions. Investing in the market as a whole is a simple way to invest and it’s proven to be a great long-term investment. You don’t need complicated. If you don’t understand the investment, chances are it’s not worth it.

5. Take advantage of employer matches on 401(k).

This is pretty simple: any employer match is an immediate return on investment. So take advantage of this! Our recommendation is to invest just enough in the 401(k) to receive the maximum match. The rest of your investment should target tax-advantaged instruments such as Roth IRAs.

6. Invest for the long-term

Remember, investing isn’t about right now, it isn’t about 5 years from now: it’s about the long-term! So try not to get too caught up in the natural volatility of the overall market. Things happen, prices change. But in the end, the market always goes up. Check out this graph of Gross Domestic Product (GDP) over the last 40 years.

GDP is a measure of overall economic and market health and the graph shows that is has always trended upward.  The gray bars that occur periodically are recessions and their respective lengths. You’ll notice that recessions seem to happen every 5 or 10 years. This can be scary for a lot of people wanting to invest. But this shouldn’t stop you from investing. Recessions happen, but if you keep your mind-set on the long-term, these recessions shouldn’t phase you. Invest, and let your investments sit. They will assuredly rise and fall, but in the end, the market always goes up.

The other big reason to invest for the long-term, is to take advantage of tax law. Any investment held over 1 year is no longer subject to your ordinary income tax rate, but will now be subject to a much more favorable capital gains tax rate once the investment is sold.

As the table shows, the capital gain rates are much more favorable than ordinary income tax rates. So make sure that when you invest, that you hold it longer than a year if possible! Keep more money in your pocket.

Recap

Let’s do a quick recap of our 6 principles for successful investing:

1. Start early
2. Diversify
3. Seek low-fee investments
4. Avoid investments you don’t understand
5. Take advantage of employer matches on 401(k)
6. Invest for the long-term

These are simple principles that will help you to become a wise investor. Look out for our future articles that will go more into detail about investment strategies, and investment research!

Are there any other principles you abide by when investing? Comment below!